Another Way to Look at Low-Wealth Households

There's a new book out there called Untapped -- Creating Value in Underserved Markets. If you haven't read it, you should. It never mentions credit unions; but it's all about credit unions. Untapped provides specific examples of how businesses around the world have had success reaching and growing business among underserved communities that previously were not considered viable customers.

The basic premise put forth in Untapped is that there is massive opportunity to provide products and services to underserved communities at the BOP--"bottom of the pyramid." This is the 4-5 billion households worldwide that live on $2 a day or less. C.K. Prahalad of the University of Michigan, Untapped author John Weiser of Brody-Weiser-Burns, and other leading thinkers believe this to be the case. There is a growing body of knowledge and real-world examples pointing to the viability of this new paradigm.

During my short time in the credit union movement, I've seen the discussion about serving low-wealth households move from something credit unions need to do in order to satisfy Congress, to a discussion focusing on how serving low-wealth households can and in most cases should be part of a credit union's strategy for growth.

That's the good news. The bad news is that serving low-wealth households is risky. It takes innovative approaches. It requires new ways of approaching local markets and adapting to community realities. Organizations will need to change their internal incentives and operations in order to meet the cultural challenges inherent in serving low-wealth households. And strategic alliances and partnerships with community groups will become vital.

In other words, it's not easy. And in the case of credit unions, it will require a stomach for risk-taking and a commitment to the long haul. But, as many businesses and organizations around the world are beginning to realize, it can be done in a way that respects the bottom line.

I mentioned earlier that Untapped never mentions credit unions; yet when you read it, you read credit unions into it. For example, in Chapter One the authors pose the following questions (replace the word "company" with "credit union" and replace "customers" with "members"):

o "How does a company sustain growth when the market it is selling to reaches saturation?"

o "How can a company continue to grow profitably when there are fewer and fewer new customers in its core markets?"

Typically, companies would not respond to these questions by saying, "Serve low-wealth households and underserved communities!" These are generally poorer people with very little disposable income. Or they have language issues making it difficult to reach them efficiently or effectively. But the authors suggest there's another way of looking at low-wealth households. Consider these facts: o There are billions of undeserved consumers in domestic and overseas markets and many of them live in high-density communities. That means their aggregate purchasing power as consumers is huge. o While many individuals and families in these low-wealth markets are poor, some have reached middle class status, and some have even accumulated significant wealth. The size of these markets, therefore, means that just a modest percentage of middle-income households can represent significant market potential.

Some more facts that help you think differently about low-wealth communities:

o The purchasing power of one demographic group traditionally considered "low-wealth" in the U.S. is African Americans. In the U.S. alone, if aggregated, African Americans constitute an economy larger than all of Canada's.

o Total purchasing power of all ethnic minorities in the U.S. is projected to top $1.5 trillion by 2009.

o America's inner cities represent $85 billion in retail spending each year--or approximately 7% of all U.S. retail spending.

o The 100 fastest-growing companies located in "under-served" inner-city U.S. markets recorded an average five-year growth rate of 716% as of 2005--a compound annual rate of 54%.

These data points and other information put forth by the authors of Untapped and other emerging voices indicate there are enormous opportunities out there for those willing to take some risk and consider another way to look at low-wealth households. So even though Untapped never mentions credit unions, it's hard to read it without seeing how credit unions can and should consider rethinking assumptions about low-wealth households. At the National Credit Union Foundation, we are helping credit unions do that through REAL Solutions. REAL Solutions is a program piloted by the Filene Research Institute, which NCUF has taken on as our signature initiative over the next three years.

REAL Solutions--which stands for "Relevant, Effective, Asset-building, Loyalty-producing" Solutions--is designed to help credit unions better serve low-wealth and modest means households. The program works through state credit union leagues to assist credit unions in offering products and services proven effective in attracting and serving low-wealth and modest means consumers.

When the Foundation decided to focus significant resources to help credit unions better serve low-wealth households, we thought it would help provide tangible examples of credit unions' social impact that would help address Congress' expectation that credit unions do more to reach out and serve the underserved.

But now we know more. We know that not only is this a positive way to demonstrate credit unions' commitment to serving the underserved; it is also a way to rethink where credit union membership growth can occur in the future.